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Global acreage expansion pauses amid Black Sea conflict

Getty/iStockphoto Rows of corn and soybeans next to each other in a sunlit field on a summer day
High input costs and Ukrainian war shrink global harvested corn, wheat acreages

I’ve previously discussed global acreage expansions and the phenomenal acreage growth the world has experienced over the past decade, primarily in South America and the Black Sea. But for the first time since 2019, global harvested acreage for corn, soybeans and wheat is going to shrink, according to last Thursday’s World Agriculture Supply and Demand Estimates report issued by USDA.

About 1.38 billion acres of corn, soybeans and wheat are going to be harvested around the globe this year – 628,000 fewer acres harvested than last year. The loss comes after two consecutive years of acreage gains for these three crops, which totaled a staggering 63.5 million acres of new global crop expansion.

Global corn soybean and wheat acres

A contraction in global corn acres harvested will lead to the smaller 2022/23 global acreage estimate. Nearly 8.9 million fewer corn acres will be harvested compared to last year, bringing the 2022/23 total just shy of 501 million acres. Ukraine’s wartime production losses and a smaller U.S. corn crop are the chief contributors here, though lucrative earnings for other crops, especially oilseeds, are also a factor in a shift away from these primary row crops.

High fertilizer prices will play a role in 3.5 million fewer acres of wheat harvested this year. About 546 million acres of wheat will be harvested globally in 2022/23, nearly erasing the acreage gains of 2021/22. Corn and wheat typically require more fertilizer applications than soybeans, and amid high input costs and questionable availability, soybean acreage expected to be harvested this year will rise while corn and wheat acreage declines.

The acreage lost on corn and wheat will be nearly made up by expanding soybean acres this year. Global soy acres are slated to see an 11.7-million-acre increase this year to 333 million acres. Continued expansion in Brazil and Argentina will account for most of the acreage, but nearly 4 million more U.S. soybean acres will also help global soy acreage gain ground.

Global soybean acreage expansion

That will force some interesting supply dynamics into motion. While global wheat exports are slated to grow 3% next year, due in large part to strong Russian and European Union crops and a recovery in Canadian acres, exportable corn supplies around the world will shrink by 8% on smaller U.S. crop estimates.

Potential supply constraints – corn & wheat

Supply pressures are going to continue to squeeze wheat and corn prices higher in the coming months. At a 27.01% stocks-to-use ratio and only 99 days of carryout, 2022/23 world wheat supplies are likely to be the tightest since the 2014/15 marketing year.

Overall ending global stocks volume for wheat will slip to 9.81 billion bushels, the smallest level in six years. But what is more concerning to me than the absolute volume difference here is the volume difference relative to global usage. Sure, 2016/17 stocks ended at 9.78 billion bushels, but global wheat consumption at that time was only 33.83 billion bushels.

World wheat stocks-to-use

In 2022/23, the world will use approximately 36.33 billion bushels – a 7.4% increase in demand since 2016/17 with a similar amount of residual crop remaining. The significance of supply depends largely on usage rates. It’s a concept similar to working capital in terms of liquidity discussions. Less wheat means there are fewer bushels (working capital) in the demand pipeline (i.e. your bank account) to sustain usage rates (paying for operation costs – liquidity).

While tight supplies are initially a bullish indicator, if usage rates decline further because buyers are increasingly priced out of the market, it could turn into a bearish trap for global wheat prices. USDA already forecasts smaller Middle East wheat imports next year amid high wheat prices. The region is the world’s second largest wheat importing region, following Northern Africa.

Global corn supplies will be similarly squeezed, with little hopes of breaking out of three consecutive years of tight supplies. The 2022/23 STU ratio for corn came in at 22.42%, which is consistent with supply levels over the past two marketing years. But it also means that global corn liquidity will be significantly less than that of wheat, so growers will likely have multiple opportunities to book record sales throughout the marketing year.

Global corn supplies

But the big issue underscoring these supply issues extends beyond stock volumes. Global corn usage will contract this year, the first time since 2019/20 that U.S. crop shortfalls have happened in the world. Wheat usage rates are only expected to rise by a measly 0.2%, suggesting that any potential crop shortfalls in the Northern Hemisphere this summer (i.e. the U.S. spring wheat crop) could translate into even higher prices that could drive buyers out of the market.

Soybean supplies – room for more optimism?

A reversion to more normal weather patterns (hopefully) in South America and a record U.S. soybean crop will loosen global soybean supplies slightly. But demand growth will rise an astounding 1.06 billion bushels from 2021/22 volumes to 20.11 billion bushels – a 6% annual increase. If realized, it will be the fifth largest annual expansion in the global soybean market on record following 2014, 2009, 2019 and 2016.

US soybean stocks-to-use ratio

Global stocks will loosen slightly as the global soybean STU ratio grows nearly two points to 18.2% in 2022/23. That’s the largest supply availability in the soybean market since 2020/21, which emphasizes just how tight these global oilseed markets have become, especially in the wake of Russia’s occupation of Ukraine.

Perhaps the most significant development for soybean markets coming from last Thursday’s report was USDA’s forecast that 2022/23 Chinese soybean imports would rise to the second largest volume on record. China is on track to be the world’s largest consumer of coarse grains and oilseeds this year, so its purchases will inevitably influence market prices.

Chinese imports

The bulls settled back into the soybean market as China’s soybean import forecast for the 2022/23 marketing year (3.64B bu.) grew to its highest volume since the 2020/21 marketing year (3.67B bu.) as expansion of the country’s hog herd moderates.

The 2022/23 marketing year is expected to see China record its second-largest soybean import volumes on record. Granted, those import gains are likely to come at the expense of smaller corn and wheat imports. China’s wheat crop is already off to a rough start amid drought and corn acres will decrease to make room for a domestic soybean expansion, so the optimism for other grain imports could grow to match the optimism for soybeans in the coming months.

Parting thoughts

It is increasingly clear that there is little room for error for 2022/23 global grain and oilseed production. The 2022 growing year in the northern hemisphere is already off to a rocky start in the U.S., China, India, North Africa, and parts of Europe and Russia. La Niña pressures are ever-present this summer, so there are no guarantees for a smooth growing season.

Global demand for grains and oilseeds is rising at a dizzying pace in the post-pandemic era, keeping a bullish floor on commodity prices. Expect any news of production woes (i.e. India’s heat wave) to trigger even more bullish price action in the grain markets. Until then, use this bull market to reinforce cash reserves to offset rising interest rates and input costs. 

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